Contingencies

Contingencies in Hawaii, Maui or Oahu

There are standard contingencies every seller should expect to see in an offer to purchase real estate: Title contingency, inspection contingency, survey and unless the offer is all cash, appraisal and loan contingencies.

There is also a non-standard contingency that sellers should avoid: an offer contingent on the buyer selling his or her own house.

Each of these contingencies is described in detail below.

Standard contingencies

Title contingency: All offers to purchase real estate will say the buyer’s offer is contingent on the buyer finding title to be satisfactory. The language may read:

Buyer finding the state of the Property to be satisfactory to Buyer after… reviewing all required disclosures and reports, including the preliminary title report.

In Hawaii real estate transactions, the escrow company delivers the title report to the buyer, and the buyer must have his or her review complete by the contingency removal date.

Inspection contingency: Typically the buyer will have the right to inspect the property and view your disclosures, including the termite report. The inspection contingency clause may read the purchase is contingent upon:

Buyer finding the state of the Property to be satisfactory to Buyer after having a professional inspection of the Property and reviewing all required disclosures and reports…

Buyer does not have to move forward with the purchase unless he or she finds the property to be to his or her satisfaction. This right obviously gives the buyer a lot of power and disfavors sellers.

That said, it is highly unusual for the seller to try to eliminate the inspection contingency clause. Instead, sellers consider shortening the contingency removal date so that buyer’s powerful inspection contingency is short-lived.

Appraisal contingency: If the buyer is obtaining a bank loan to purchase your property, you should expect there to be an appraisal contingency. The language may read the purchase is contingent upon:

Buyer receiving an appraisal on the Property at or above the Purchase Price from a certified appraiser.

Banks almost universally require an appraisal as part of approving a loan. To avoid the appraisal contingency as a seller, you generally need to find an all-cash buyer.

That said, you can as a seller sometimes counter the appraisal contingency out of the contract and buyers will accept it. They will still have an appraisal done. They just will put up more cash and take a lower loan amount if the appraisal comes in low.

Loan contingency: If the buyer is using a bank loan to obtain part of the purchase price, you should expect a loan contingency, also known as a financing contingency or mortgage contingency, as part of the offer. The language may read:

Buyer’s offer is contingent on buyer obtaining the loan.

It is very rare for a seller to counter the loan contingency because most buyers who need a loan will not move forward without it. If you as the seller are uncomfortable with a loan contingency, you generally need to find an all-cash buyer.

What sellers do sometimes counter is the length of the loan contingency.  Buyers often ask for the contingency to survive until the loan is funded. Sellers may counter that the contingency must be removed within X days prior to closing.


Non-Standard Contingencies to Avoid

Contingent on the sale of another property: The #1 contingency to avoid as the seller is an offer contingent on the sale of another property. In other words, you generally do not want to get involved at all with a buyer who must first sell his or her own house before purchasing yours. There are some exceptions to this general rule, which you can read about on our blog.